I laid an amendment against the personal tax and benefits review instructing the Treasury & Resources department to review the advantages and disadvantages of introducing a progressive personal tax system through tax bandings, with a lower rate for those on low incomes to a higher rate for those on the highest incomes. It was defeated on the back of quite erroneous scaremongering by certain Deputies, most notably Deputies Stewart who believed it would mean High Net Worth Individuals would not want to come to Guernsey as a result. This made no sense given that Guernsey has no Capita Gains Tax or Inheritance Tax. What was also forgotten was that the amendment only sought for this to be investigated, not that it should be. My opening and closing speeches are below and I stand by everything I said that day. The reference to the dark side in my closing speech is as a result of Deputy Stewart saying that is where I had gone with this amendment. Of course, he is the one that has not seen the light!
It is not unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.’ Those are not my words but, perhaps somewhat surprisingly, those of Adam Smith in Book 5 of The Wealth of Nations, covering the Sources of General and Public Revenue of Society.
And it is in support of that argument that this amendment seeks to direct T&R to investigate the implications of and proposals, if appropriate, for the introduction of a progressive system of income tax with lower bands for lower earners and higher bands for higher earners.
Now there is always a lot of noise heard whenever the idea of charging higher rates for higher earners is mooted. That by increasing tax rates it will make Guernsey less competitive. Indeed, in the Appendices it states that increasing the tax rate for higher earners would put Guernsey at a disadvantage.
However, on the assumption that we are not talking about pernicious rates of tax, which I do not believe we need to do and certainly don’t advocate, I question that reasoning.
For a start, I would question just how much more supportive of high earners we could be here. We have no Capital Gains Tax or Inheritance Tax for a start. Add to that low property taxes and the most well off in our society actually do comparatively very well compared both to other Islanders and high-earners elsewhere.
Quite frankly when I read in this report that and I quote, ‘increasing tax rates or withdrawing allowances for high earners would increase the number of people who plan their affairs in such a way as to minimise their tax liability, I was flabbergasted! Don’t make people pay more as they will seek to avoid it! Yes, I would say the more complicated a tax system the easier it is to avoid, but a higher tax band is hardly going to see hoard of people rushing to their tax accountants.
Arguments are often made that high earners are synonymous with entrepreneurs. Indeed, the report states that highly skilled individuals ‘tend to’ generate economic growth by developing businesses and devising new products and services. And that by charging tax rates which could discourage such people from moving to, or staying in Guernsey could be detrimental for the Island’s economy and its growth potential, which, we are told, in this report, must be the States’ first priority.
But I’d say, if generating economic growth is our first priority – what are we doing to encourage people to set up businesses in the first place? Surely we shouldn’t set our income tax rates on the hope someone comes along but to actively help investment in our economy.
What support do we genuinely give real entrepreneurs? Those who may not start out on fantastic incomes but have great ideas with nothing in the way of government support to help make it happen? That’s the barrier to growing our economy.
Now this amendment calls on T&R to not just look at a higher rate band but a lower rate band as well.
Appendix 1 Principles and Issues Document even states itself that in some cases the direct tax burden of lower and middle income households in Guernsey may not compare favourably with the UK or Jersey.
At present we have a recruitment crisis in nursing – this was made clear by the HSSD Minister in his statement on Tuesday. Our biggest source of skilled nurses is from the UK for a variety of reasons, but we are actually in a disadvantageous position in terms of recruitment as there are no tax benefits of coming over here, in fact quite the opposite. And neither does it help the recruitment of local nurses on an Island where the cost of living is high. A lower rate band would contribute to making Guernsey an attractive location for those key workers.
The report in front of us today is dismissive of any changes to the income tax system, other than looking at allowances. And even more strangely, amongst all the 41 recommendations there isn’t s a single one that asks us to confirm our support of the structure of income tax. Only that we should be less dependent on it. I find that unacceptable.
Whether or not GST had been killed off, I believe further analysis needs to be undertaken of our income tax system with consideration of people’s ability to pay. And let’s not hear any one from the SSD or T&R Departments stand up and say we have got all the information we need in this report, it was looked at extensively and we have all the answers, after the comments they made about needing to look further at GST. That was their focus. If they are not happy they had enough detail on GST then there definitely wasn’t enough research done on the income tax structure.
This investigation is needed irrespective of whether we have a GST system as well. The 20% rate has been treated as sacrosanct for too long. It is a shibboleth that needs to be challenged. Now is the time to do just that. I urge members to support this amendment.